Well, Cliff Lee finally signed, and it wasn’t with the favorite Texas Rangers or New York Yankees. Lee agreed to a five-year, $120 million deal to return to the Philadelphia Phillies—a “mystery team” that wasn’t ever considered to be in the mix until yesterday.

While many people scoffed at the idea of a mystery team being anything more than a ploy to get the Rangers or Yankees to raise their offers, I don’t think such shenanigans are all that credible, given the intelligence of the parties involved. Even if Lee had ended up in New York, I’d remain confident that another team had an offer on the table. The reason is that general managers of MLB teams aren’t dopes. If you’re Brian Cashman and Lee’s agent brings you an offer from a team that he refuses to identify, how credible do you think that offer is? When you go shopping for a car, and the dealer says he’s got five other customers hot to pay full price, do you believe him? Because for the fake mystery team bargaining to work, you’d have to believe that Brian Cashman is a complete idiot. I’m not saying it’s never happened, but such threats just aren’t credible to me, and I doubt that Cashman or any other GM would up an offer when they don’t have hard information about an alternative.

It’s also interesting to see how the prediction market viewed the pursuit of Lee. Intrade sold shares on contracts for Lee ending up with the Yankees, Rangers, Nationals, Mets, and others. The graphs below show the prices at which these shares were selling over time (note: the date the graphs identify as “Dec 10″ is actually December 1). It seems that traders believed Lee was going to the Yankees, but became skeptical over the weekend. But, the traders seemed to think that this meant he was more likely to go to the Rangers than and other team. The “Other” contract didn’t rise until today.

Yankees

Rangers

Nationals

Other (also excludes Mets)

And finally, what do I think Lee is worth? I estimate that over the next five years that Lee is worth about $110 million ($22 million per year) to an average team. Because the Phillies are a winning club, he’s worth a little more than that to the team. I wrote a bit about this in October; in fact, I based my estimates on the assumption that he’d get a five-year deal. The contract also includes a $27.5 million vesting option for a sixth year, so if he continues to pitch well he could end up getting as much or more than was rumored to be on the table from the Rangers and Yankees. He also gets a partial no-trade clause, which likely cost him some salary.

Tuesday, December 14th, 2010,
by JC and is filed under "Hot Stove Economics ".
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2 Responses “Valuing Cliff Lee, the Mystery Team Hoax, and the Prediction Market”

It looks like you have Cliff Lee valued higher per year than Jayson Werth. Is that a direct correlation to team performance, so can we infer that the Phillies are better off by having Lee instead of Werth (from a Win-Loss and not a profit perspective)?